Do State Subsidies for Public Universities Favor the Affluent? Evidence Speaks Reports, Vol 1, #23

Public universities typically charge students less than the full cost of education, using funds from state and local government and other sources to cover the difference. This indirect subsidy is one of the largest forms of aid in America's higher education system but is less understood in the policy community than grants and loans, which are provided directly to students in visible amounts, making them easier to analyze. Researchers and journalists aim to understand these indirect subsidies through proxies such as per-student spending, or per-student state appropriations. These simple analyses have led many to conclude that indirect subsidies at public universities favor students from affluent families. However, neither of these measures provides accurate information about the subsidy a student receives because they do not account for the tuition that students pay. Combining data from multiple sources allows us to explore the relationship between university spending on education and what their students pay in tuition, more accurately estimating the average subsidies that students at public four-year universities receive. We use these estimates to examine how subsidies differ by family income and find that subsidies for education expenditures actually decline on average as student and family incomes increase. This finding stems from two key trends that are often overlooked. First, selective state universities are not enrolling primarily high-income students--a key part of the claims critics make. In fact, low-income students are well represented at public four-year universities. Even at the most elite state universities they make up about 25 percent of the student body. Second, low-income students tend to pay lower tuition than their high-income peers, even at the same type of universities, because they receive tuition discounts and grant aid from their school. That increases the public subsidy they receive relative to their peers, even before accounting for federal grants and other direct aid. At the same time, high-income students are much more likely to attend an out-of-state school, where tuition can be as much as three times the in-state rate, effectively bringing their public subsidy to zero. One appendix is included: Methodology and Data Sources.